Threat Of U.S. Strike In Syria Drives Up Oil Prices

Discussions of a possible military strike against Syria have caused oil prices to jump sharply. Although prices eased a bit today, they're up 20 percent compared to two months ago.

As NPR's John Ydstie reports, there are fears a U.S. attack would cause the conflict to spread, affecting oil production in other parts of the Persian Gulf.

JOHN YDSTIE, BYLINE: Syria does produce a small amount of oil, but it's less than half a percent of global supply. However, Simon Henderson of The Washington Institute says the country's civil war presents a potential threat to broader oil production because it's being fought along ethnic and religious fault lines.

SIMON HENDERSON: Between Assad's Alawites, which are similar in many ways to Shiites, and the opposition which are mainly Sunni.

YDSTIE: So Iran, which is majority Shiite, supports President Assad's regime, while Saudi Arabia, which is Sunni, opposes it.

Henderson, who is the director of the Gulf and Energy Policy Program at the Washington Institute, points out that Iran has threatened to retaliate if the U.S. attacks Syria.

HENDERSON: Whether this is just bombast and rhetoric, we don't know. Until we do know, the situation is very uncertain; hence, the price in oil.

YDSTIE: Among the actions Iran might attempt is a blockade of the Strait of Hormuz. That's the narrow water passage between Iran and the Gulf States. Huge ocean-going tankers pass through the strait every day carrying one-fifth of the world's oil supply. The prospect of a disruption in that supply is what's pushed prices up rapidly.

Another potential choke point is the pipeline coming out of Iraq, along Syria's northern border and on through Turkey. It's been the target of sabotage in the conflict between Iraq's Sunnis and Shiites. One other factor that's pushing up prices: a sharp drop in production in Libya due to protests unrelated to Syria.

Whether the current higher prices will stick and flow through to gasoline prices at the pump remains a question, says Henderson.

HENDERSON: We really have to wait to see how military and political events play out in the next few days.

YDSTIE: If U.S. attack is viewed as a success and Assad's supporters are unable to disrupt supplies, the price will likely fall quickly, says Henderson. But if there is a disruption, he says oil prices could skyrocket. That could be a blow to the recovering world economy and especially to emerging markets like India, whose currencies have plunged recently, making oil even more expensive for them.